With thousands of businesses on the market, not to mention over 1,000 franchise brands out there to choose from, how do you spot a good business?

Well it’s another new year, 2019! I’m not sure how that happened so fast, but here we are, how time flies. In our business, what I find at the beginning of a new year is a spike of people looking for business opportunities. We have more people at this time of year exploring their options and maybe this is because they have time while on holidays or it’s their new year’s resolution to finally buy their own business once and for all. Whatever the reason it is a busy time of year for a business broker.

My experience tells me that most of these potential buyers won’t go on to buy a business. From what I see and hear from them, they are just not sure what a good business looks like or how they can identify one. Without this knowledge or understanding, they can easily justify going back to what they know or to their job for another year. So maybe I can help with this article to clarify what a good business looks like for you.

Firstly, right from the outset let me say that there are no perfect businesses out there. All businesses have issues or something that the buyer won’t like about them. This is normal and when looking at a business you need to be commercial in your thinking. If you see an issue that you don’t like about a business, but it ticks many other boxes, you need to work out if you can live with the issues that you don’t like. In other words, is it commercially acceptable considering all the other positive points? You need to understand this point and then come to terms with it. Otherwise you can end up wasting a lot of time searching for a business that doesn’t exist.

Secondly, what does a good business look like? Well, this is actually different for everybody as we all like different things, but let’s look past what we like and don’t like about a business. The main attributes we need to focus on in determining if a business is a good one or not come down to three (3) basic things in my opinion;

Is it profitable?

This is obviously the most important need of any business. If it is not profitable, is it really a business worth looking at unless you believe you can turn it around. Many fortunes have been made this way, although it is very risky. For me, I’m looking for a business that is profitable due to a good underlying reason.

• Does it have sought-after products or services,
• Are the products or services priced correctly with good profit margins,
• Does the business have good supply lines with their suppliers,
• Does the business have a good reputation (google ranking) with their customers and the business community at large, just to name a few.

There are a few more things to look for and each business is a bit different, but these are the big ones to look for and ask questions about.

Does it have a good stable history?

For me a good stable history is more than the businesses sales results and financial statements. A good business that has been operating for quite some time will have good systems, hopefully stable financial records and strong relationships with staff, suppliers and customers. What I find with most buyers and their advisors looking at purchasing a business is they spend a great deal of time reviewing the financial statements of year gone by, and not enough or any time reviewing aspects of the business that will hopefully see the business grow and prosper into the future.

Don’t get me wrong, financial statements are important, but they don’t guarantee what has happened in years gone by will be repeated into the future. This is why I would spend time looking at these statements then then look into the business to see why these results were achieved and can they be replicated, or better still improved on. Look past the financial statements to see what makes the business tick and does it have sound systems and procedures. Good questions to start with would be to ask to review their operations manuals, business plan and other documents to show they are prepared and organised.

Does it suit your lifestyle?

Now this one for me is the most important. It wouldn’t make sense to me if the business I was about to purchase had the first two (2) points covered, but was then totally not suitable for me, my family and our lifestyle. This is a hard one to pass as well, as the business might look great and ticks all the boxes, but has something about it that doesn’t suit your way of life. These businesses usually end up becoming a burden and unpleasant to be part of. They can also put great strain on you and your family. Spend some time at the beginning working out what you want your lifestyle to be and then shape your business search around that. You will be a lot better off for it.